I spent quality time last night in a room full of entrepreneurs. A long-time friend who has created and guided what are now big businesses, invests around half his assets into private companies run and owned by people he believes in. He gathered them together for a year-end party, with me as the late night entertainment. As he’s a good friend, and as they are people who know the subject really well, I did a lot of work preparing this speech. The text is republished below – sharing from history and my own life, to provide thoughts and guidance on why I really believe SA is one of the very best places right now to be an entrepreneur. Not for reasons you might imagine. – Alec Hogg
Speech by Alec Hogg to MDs of Reed Enterprises companies, Johannesburg, 18 November 2015
During the next 20 minutes or so, I’d like to share some of my experiences on entrepreneurship. And build the case for why I believe, really believe, there are few more favourable places on earth to be an entrepreneur than right now, right here in the Good Old RSA.
But to get there we’re going to start with an ancient event. One which witnessed a triumph of good over evil, of small over big and has motivated people for centuries. A story so important an entire chapter of the Bible is devoted to it (1 Samuel Chapter 17 to be precise).An event sufficiently relevant today that it provided the title of Malcolm Gladwell’s latest bestseller.
Around 3 000 years ago, a seafaring people from the island of Crete invaded what is today known as Israel. This nation, the Philistines, pushed further inland eventually reaching the foothills of the higher ground where the invaders readied for battle against those who lived in the higher region, King Saul’s Israelites.
The opposing forces camped on hills between the Valley of Elah. Neither army was keen to attack the other’s stronghold. So every morning and evening for 40 days, a six foot nine giant called Goliath came out of the Philistine camp to taunt King Saul’s men – challenging them in man-to-man combat. Were he defeated, Goliath shouted, the Philistines would become slaves to the people of Israel. And vice versa.
The bible tells us “On hearing the Philistine’s words, Saul and all the Israelites were dismayed and terrified.” The perspective they all held was that none in their nation could defeat the giant. And each day they grew more nervous. King Saul offered great wealth, tax exemption and even his daughter’s hand in marriage to anyone who would kill Goliath.
There were no takers.
That was, until a young shepherd called David arrived in the camp. He’d been sent by his father to deliver food to his three brothers in Saul’s army. After hearing of Goliath’s challenge and the reward on offer, David volunteered, a boy showing more faith in his Higher Power than the entire army of men.
King Saul was so impressed he dressed the boy in his own tunic, put on a coat of armour and placed a bronze helmet on his head. David was barely able to move. So he stripped them off, thus sparking the event that was to inspire so many for millennia.
We all know how the story ended. The shepherd boy with a sling fired one of his five pebbles into the giant’s unprotected forehead. Then he used Goliath’s sword to kill the prostate giant before cutting off his head. And yes, he did marry Saul’s daughter Michal, became close pals with his brother-in-law Jonathan and eventually succeeded the King Saul himself.
For three millennia, mankind ascribed David victory to divine intervention. Indeed, getting onto the battlefield in the first instance surely required it. But, as Gladwell explains so eloquently in his book, the duel itself was a mismatch.
Goliath, represented the power but immobility of heavy infantry. He was unbeatable in the rules of engagement he prescribed and struck a fearsome pose. But Gladwell and other scholars also say Goliath has a hidden weakness. He was almost certainly afflicted by Acromegaly, a benign growth on his pituitary glad which causes excessive growth with the side effect of poor eyesight.
David, by contrast, was light and fast moving – with a weapon that from a distance of 35 metres has the stopping power of a modern handgun. Once David threw away the rulebook, put his ego in his pocket and risked ridicule by entering the duel with a sling, there was only ever going to be one winner. It was like taking a gun to a knife fight.
David’s example carries a wonderful message for entrepreneurs. With speed, agility and surprise you possess the power to overcome those with infinitely greater resources. Acting in a way others believe is ridiculous, however, required being impervious to social convention. And that needs a seriously suppressed ego – something which is one of the most difficult attributes for any man.
In David and Goliath, Gladwell also he refers us to a work by historian Ivan Arreguin-Toft called How the Weak Win Wars. The author kicks this off with a reminder of the epic “rumble in the jungle” in Kinshasa on October 30, 1974.
World heavyweight boxing champion George Foreman was easily the strongest, hardest hitting fighter on earth. He had knocked out every one of his previous opponents within three rounds. Foreman was a boxing freak at the peak of his powers.
His opponent Muhammad Ali’s major assets were being lighter on his feet and a slightly faster punch. So Foreman sparred for hours against nimbler opponents. When the bell rang for the first round, the Champion was tuned to a fine pitch. Yet in the eighth round Ali, who by all conventional rules had no chance of winning, was the one who delivered the knockout blow.
Ali won by throwing away the rules of engagement.1
He tricked Foreman during the first five furious rounds, suppressing his famous ego to applying what he later called a rope-a-dope strategy. Ali spend the early rounds cowering on the ropes, defending for all he was worth while getting Foreman to lose his temper by taunting him with “George, you’re not hitting,” and “George you disappoint me”.
By the eighth round, Foreman had punched himself to exhaustion. Ali’s strategy, using the ring’s elastic ropes to absorb much of the power in Foreman’s fearsome punches, won the day
Arreguin-Toft researched 197 of what he called “asymmetric conflicts” between 1800 and 1998 – wars between unequal forces, Davids and Goliaths. The data reinforces much of what entrepreneurs intuitively know but are often too insecure to apply: Provided they ignore Goliath’s rules, even though less resourced, they win more often than not. During those two centuries, when both the strong and weaker armies applied conventional warfare, the one with greater resources was victorious 76% of the time. These wars lasted an average of two and a half years. But when the weaker army threw away the rulebook and fought unconventionally, it was they who mostly prevailed – 63% of the time, although the wars lasted almost twice as long.
Patience, we now learn, is another powerful weapon in David’s armoury. I grew up in Newcastle, and often visited the arena which hosted a near perfect example of how Arreguin-Toft’s theory works in practice. In 1880, the British Empire was near its zenith.
India was the jewel in its crown, and in an age when the Suez Canal was but a dream, the sea route around the Cape of Good Hope was regarded by the Brits as of crucial importance.
A rebellious little Boer republic in the hinterland couldn’t be tolerated. So after formally annexing the Transvaal Republic, in 1881 on hearing trouble was brewing, the British sent a force of redcoats to enforce Imperial Law. The pride of England’s 58th Regiment and the Gordon Highlanders were led by one of the global power’s best, General George Pomeroy Colley.
After a few smaller battles had gone badly for them Colley, the man who had written Encyclopedia Britannica’s section on The Army, led his force in a daring overnight climb to the top of Majuba Hill. Once reaching it, they celebrated their ascent as though they had won a famous victory. Convention in those days said he who controlled the heights controlled the battle.
On waking the next morning, the initially dismayed Boers threw away the rulebook. Skilfully using their superior musketry, camouflaged attire and Majuba’s dead ground, they slowly fought up to the summit.
Legend has it that Colley died in his dressing gown, having taken a short nap after the nightly exertion and only leaving his tent when the battle was effectively over.
He and 91 other redcoats died and a further 134 were wounded and 59 captured. The Boers lost a single man with five wounded.
The British had fixed bayonets and jeered their enemy’s refusal to engage in hand-to-hand combat. The Boers defied battlefield convention of the time, stayed at long range, and picked off Colley’s hearties at will.
David achieved such a crushing victory over Goliath that the next day, the British signed terms of surrender at O’Neill’s cottage on the slopes of Majuba, freeing the tiny republic from the Imperial clutches. It was almost 20 years later before the greatest empire on earth again tried their luck – and were it not for the heartless but unconventional slashing and burning and introducing concentration camps, would surely have lost that war as well.
Examples of conflict illustrate these important points because, in a market driven economy, business owners face precisely the same pressures every day. Companies in the private sector operate in an environment where resources have been unfairly allocated and rules are often written to favour incumbents.
In the light of this reality, it should hardly surprise us that research by Bloomberg shows that 80% of new business fold within 18 months.
Business schools are full of important people who offer rather naïve reasons why there is such a high failure rate. Mostly, they say, it is because new businesses are poorly funded to start with; over-estimate their early success and are forced to close up shop because they simply run out of cash. That’s asinine.
The real reason isn’t to be found in one of the 10 000 new business books churned out every year. It lies, instead, in what he world learnt at the Battle of Elah – but which ego and the teaching of well intended ignoramuses stops us from applying. In reality, to win in an uneven battle, one needs to act unconventionally. And never stop believing you will win.
Some of my own entrepreneurial story may help explain this a little better.
I am from the school that believes some are born entrepreneurs – my first business was as an 8-year-old, creating my home town’s first newspaper round. In adulthood, after a couple of mediocre businesses, I worked briefly in the corporate world earning the big bucks with little real responsibility. It was here that I was introduced, in 1995, to the then fledgling world wide web, the Internet.
A year later I’d engineered an exit, cashed in share options and used the capital to start my own new business. It revolved at first around a weekly email newsletter called Boardroom Talk.
Email was in its infancy, so even though the service was for free, each new subscriber was celebrated with gusto. Using the newsletter as a base, I started my own website, Moneyweb, in 1998.
That little acorn was to grow into a serious media player, one that thrived despite Telkom’s premeditated decision to starve South Africans of bandwidth and thus keep prices excessively high. As the business developed and my priorities shifted, missives to my Boardroom Talk subscribers dropped from weekly to monthly to a couple times a year, to never.
In 2012, for reasons fully articulated elsewhere, I resigned as the CEO of my business which had by then become controlled by a modern day Goliath called Caxton. The resignation triggered a one year’s notice period. Caxton paid me my full salary but demanded that I did nothing to compete with my old company.
Some months before leaving Moneyweb, while on semi-sabbatical, I had resuscitated the long neglected Boardroom Talk subscriber list. Many of the addresses had changed and before being able to use the list, I had to spend a few thousand rand getting the list “cleaned”. My departure from Moneyweb was so sudden that I wasn’t even able to say goodbye to listeners on my 15-year-old nightly radio show. The now relatively clean list was a handy way to communicate, as I did monthly, with people who had supported my career over many years.
After sending out a few monthly mailers, Caxton let us know it believed the subscribers belonged to it.
Talking through lawyers, we argued that this wasn’t the case as Boardroom Talk preceded the creation of Moneyweb and had always remained my personal property. But we expressed comfort to go enter arbitration to settle the issue.
A few weeks later, one Friday afternoon, the Sheriff arrived with a doorstopper document demanding my appearance in the High Court.
What happened next was a watershed. For a moment, my lawyer and I were full of ego, keen to expose our opponent in court; to show the world how small-minded and petty Caxton was behaving; to take the battle into the public arena. It was only a few months after leaving my creation, so the wound was still raw.
Our eventual decision, to capitulate, didn’t come easy. It never does when you believe you’re right. In this case the settlement included the indignity of Caxton demanding that it be allowed to send IT specialists from KPMG into our home to scan all our computers to make certain we hadn’t kept the subscriber list hidden somewhere. This was an act of pure malice. Anyone with an ounce of tech savvy knows electronic files are easily stored on a flash disk that could be hidden anywhere.
Looking back, the decision to not fight my own particular Goliath, where he chose worked out brilliantly. Just over two years after starting the competitive Biznews.com, the audience accessing our website and the Biznews section at our partner Fin24, exceeds that of the company I left behind. Having consciously removed the distraction and cost of a High Court suit, we are winning in the only place it really matters – the marketplace.
So how does that marketplace look for those of us operating businesses in South Africa? It is easy to get depressed when you live with headlines which daily shout examples of Government incompetence, a bankrupt ideology and widespread corruption. But, once again, getting caught up in that web is counter-productive for entrepreneurs.
For some years, EY used to sponsor me to cover its annual World Entrepreneur of the Year event. The highlight was a few days in Monaco spending time with finalists representing a couple dozen countries. As you might imagine, it was an exquisite learning experience.
Especially when in 2006 I was sitting next to Imperial’s builder, the late Bill Lynch, when he was announced as overall winner of the global award. His most often repeated advice to entrepreneurs, by the way, was just do it – avoid analysis paralysis, start small, learn as you grow and heed the lessons.
My over-riding insight from all this entrepreneurial wisdom, though, was even more simple: The role of an entrepreneur is to assess the parameters and work out how to work within them. It is not his or her job to change the rules, much less distract themselves by complaining about them. Doing so destroys the entrepreneur’s greatest weapons – their ability to be nimble and their inherent optimism.
On that score, it’s worth noting what political analyst Moeletsi Mbeki told me earlier this week – the full interview is on Biznews by the way.
The younger brother of former President Thabo and son of the late SACP leader Govan says we care less about the outrageous anti-business statements spewed out by politicians – and headlined in the media.
To quote Moeletsi: “The ANC is not very good at implementing anything – this has always been my disagreement going back to when I was at primary school. It will pass all sorts of resolutions and then fails to implement them. So I wouldn’t be too worried about the pronouncements that are made.”
Especially so, if you are nimble.
It’s virtually impossible for the country’s major corporations to avoid well intentioned but anti-competitive Government policies like BEE, restrictive labour practices, Affirmative Action and the like. That’s the major reason why Corporate South Africa is on an investment strike, funnelling mobile capital out of the country and, on that which it cannot export, leaving a record R500bn earning a pittance in the bank.
Paradoxically, such anti-business laws are actually only enforceable only by the companies themselves. The people who work in big companies love the job security of red tape. So they tend to work with rather than around these energy-wasting obstacles. That is coming back to bite.
The world has enjoyed almost a decade of high liquidity generated in the wake of the Global Financial Crisis. Like any major wave, it had the effect of raising all ships, hiding a multitude of sins that are embedded in uncompetitive businesses with disengaged staff.
It is only when artificial stimulants like the financial drug called Quantitative Easing are withdrawn, that, to use Warren Buffett’s expression, we get to see who has been swimming naked. Only in such climates does meritocracy truly prevail.
South Africa, and the world, is entering a lengthy period of just such a going out of the tide. With a far more competitive political environment being ushered into the country, there has rarely been a better time than now to be an entrepreneur in this country.